J.C. Penney's Startling Customer Service Problem

AP, Mark Lennihan
This week, I paid a visit to a J.C. Penney (JCP) at a shopping mall in New Jersey.

The century-old retailer has spent the last three years in the headlines for all the wrong reasons. Former Apple executive Ron Johnson took over as CEO in fall 2011 and immediately implemented a total makeover, doing away with coupons and sales, and abandoning its traditional house brands in favor of more fashion-forward collections. Sales tanked, so earlier this year the board fired him and brought back his predecessor, Myron Ullman, to try to get things back on track. Now the sales and coupons are back with a vengeance, as are brands like St. John's Bay.

The big question now is whether the customers will come back, too. I headed to the mall on Wednesday night to see how the turnaround is going -- and what it means for shoppers.

I found a ghost town.

Where Are the Employees?

Granted, a Wednesday night isn't a great time to evaluate foot traffic -- I would have been better off going on a weekend. But even compared with the mall's other anchors, traffic was exceedingly thin.

And it wasn't just the lack of customers that had me concerned.

%VIRTUAL-article-sponsoredlinks%After wandering around the men's department for several minutes, it occurred to me that I hadn't come across any store employees. So I did a walk-through of the entire department, and confirmed it: There wasn't a single employee on the floor of the men's department, save for a woman folding clothes in the fitting room.

There were no cash registers open. The Levi's Denim Bar, a Johnson innovation, was not attended by any associates who might have helped guide a jeans purchase. The iPads mounted on the end of the bar were switched off.

Finally, an employee did show up, trailing an agitated customer. It seems he was having some difficulty understanding the terms of a T-shirt sale, and had dragged her there from another department to explain which shirts were $8 and which were $10.

"I think it's only $8 for promo tees," she said after puzzling over the maze of sale signs. "But I don't know what those are. I work in shoes."

Then she walked away, leaving the customer's question unanswered; when he protested, she reiterated that she worked in the shoe department.

Obviously J.C. Penney doesn't want its stores packed with employees if the customers aren't there -- it's got profits to think about, after all. But it was clear that having such low staffing levels constituted a significant customer service issue.

(It's also a loss-prevention issue: With no employees in sight, anyone could have easily stuffed some merchandise into a bag and walked out without being noticed.)

Profits vs. Customers

Obviously a single trip to one mall on a Wednesday night is insufficient evidence to conclude there's a company-wide issue. So for more insight, I called up Seth Golden of Capital Ladder Advisory Group, which has conducted multiple "channel checks" of J.C. Penney since initiating coverage of the retailer.

Golden says he hasn't seen staffing shortfalls to the extreme that I observed. But he does say there's been intentional downsizing at the retailer, a process that's been helped along by the adoption of the "Libby" -- a handheld cash register similar to what Apple Store employees use. That ability to control costs, combined with an observed uptick in foot traffic in the last five months, are good signs for the company.

At the same time, it's difficult to believe that J.C. Penney is going to win back any lapsed customers if it's leaving entire departments without a customer service presence.

"The company still doesn't rank where we're bullish on their customer service," he says. "Do they need more people on floor? Yes, from a customer service standpoint, they do. But they do have to manage profitability."

If you're a J.C. Penney investor, it's good to hear that the company is taking steps to improve its margins. But should customers bother with it?

Besides the lack of staff, the other thing that struck me was how many signs I saw advertising significant discounts. Martha Stewart party favors were marked down to $3.99, T-shirts were selling for $8, and I saw some big markdowns on sheet sets. Even if the customer service left something to be desired, at least there were good deals to be had.

But Golden urges caution on that front, echoing the growing consensus that the retailer was simply marking up its prices so that it could then advertise discounts.

"There's not really any discounting going on, outside of the couponing," he says. "If you look at the actual price that you will be paying after the percent-off, it is the exact same retail price that you'll find at 90 percent of retailers."

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J.C. Penney's Startling Customer Service Problem

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